Thamesmead, Back to Backs and hidden incentives……….
On 10 July 2012 HHJ Thornton QC handed down his Judgment in the matter of Platform Funding Limited v Anderson & Associates Limited  EWHC 1853 (QB). Platform brought a claim against Anderson in respect of a valuation they had provided in 2005 of a flat in a new Thamesmead development called Hill House. There are a number of interesting aspects to the decision:
- It summarises the RICS requirements regarding valuation of new builds and treatment of incentives;
- It helpfully illustrates the structure of a not untypical large scale “back to back” scheme which have become such a feature of professional negligence claims in recent years;
- It includes obiter comments that on a 90% LTV self certification mortgage the Defendants would not have established any contributory negligence. Claimant lenders typically face allegations of contributory negligence on virtually every professional negligence claim but this case reiterates that the courts are prepared to dismiss such allegations and will recognise the nature of different types of lending.
The valuation provided was for £275,000 in August 2006 and Platform had made a mortgage advance of £247,495 i.e. 90% LTV. The mortgage was intended to fund the purchase of the flat for a borrower but the borrower never lived in the flat. The borrower immediately defaulted; possession was obtained in September 2007 and the property sold in January 2008. Other claims had been pursued by Platform in respect of other flats in the same development against a number of other surveyors. In addition they had brought claims against the solicitors Bluestones who had acted on many of the purchases/mortgages in this development. Those other claims had been the subject of a confidential settlement prior to the hearing of this matter.
To add to the complexity there had been a criminal trial in 2009 against 7 individuals who had faced charges of conspiracy to defraud regarding the marketing and mortgage applications relating to this development (though all but one were acquitted). Whilst Persimmon were the developer, a Mr Barrie had become directly involved with the marketing of the flats since his company bought all 84 flats in the development and it seems that many of these transactions completed immediately before the apparent sales to individual purchasers. The Judge concluded from the evidence that Mr Barrie had ensured that any surveyors carrying out valuations would have understood the developer (rather than Mr Barrie) was selling the properties.
Shortly before this valuation the RICS had changed their requirements of surveyors when carrying out residential mortgage valuations in particular as regards the treatment of incentives and the importance of using comparables outside of the same new build development. The Defendant surveyors had carried out a number of valuations in the same development. The subject valuation was carried out by a Mr Omotosho however he did not appear as a witness and the Defendant surveyors had already determined that many of his valuations had been inaccurate.
As to Bluestones they knew that the borrower was buying from Mr Barrie’s company not Persimmon. They did not carry out ID checks but relied on copy ID supplied by the broker. The actual sale price appeared to be £247,495 or less not the £274,995 which was registered as the sale price. Mr Barrie made various transfers to make it appear that the sale price was £274,995. This was in common with other transactions in this development where Mr Barrie became the owner prior to the sale to the borrower. The mortgage advances were in reality the entirety or even more than the real purchase price because the balance(s) was funded by various transfers being made by Mr Barrie to make it appear that the purchase prices were higher.
The Judge found that Mr Omotosho had not exercised reasonable skill and care but that even if he had then it is likely that his valuation would have been the same in view of the difficulty in valuing this development. The Judge found that the loss was instead caused by Mr Barrie, Bluestones and the appearance created that the developer was marketing the properties. Notably despite the attempt to allege contributory negligence, the Judge would not have found that the lending was imprudent. Bluestones (now without the benefit of insurance) were facing contribution proceedings by the Defendant, but did not appear and Judgment was awarded against Bluestones.
A tale of a sham transaction
On 27 June 2012 HHJ Cooke handed down his Judgment in the matter of Godiva Mortgages Limited v Sophie Khan and Keepers Legal LLP  EWHC 1757 (Ch). This related to an apparent purchase in September 2009 by Ms Khan of a property from her brother in law. The price was meant to have been £495,000. The mortgage advance was £321,750 with the balance said to have been made up of a direct payment to the brother in law. What the Defendant solicitors, Keepers Legal, actually sent to the brother’s solicitors was £305,274, retaining the remainder for costs and disbursements.
In reality the transaction was a sham, the brother in law had died a year previously and the transfer documents contained forged signatures. The mortgage advance had disappeared, the sellers’ solicitors stopped trading and there was an outstanding mortgage against the property which remained unpaid. The Judge found that it was “overwhelmingly likely that Mrs Khan was dishonestly involved throughout”. Mrs Khan was found to have made dishonest and fraudulent misrepresentations to Godiva.
The claim against Keepers Legal was, however, for breach of contract and/or negligence. The Judge found that there had been a breach of contract but that resulted in only nominal damages and further that whilst there had been a breach of duty in negligence that did not cause any loss. There were a number of matters which Keepers were obliged to report which they did not report but the Judge was not convinced that Godiva’s position would have been different had they been aware of apparent discrepancies as to how the deposit was being funded. Indeed on the later point the evidence from the Godiva witnesses was not clear. Godiva might well have still lent.
The case is therefore a warning as to the great importance of addressing how the solicitors’ role caused or contributed to the loss. Critically both in witness evidence and at trial the Godiva witness could not say what Godiva would have done had certain key matters been reported.
Still no news - Third Parties (Rights Against Insurers) Act 2010
The Under Secretary of State declared on 12 July 2012 that he still could not say when the Act would come into force.